presentation for IACT

1. Valuing Start-Up & Early Stage
Companies…Art or Science
IACT Presentation
February 23, 2010
Frank Morse
Managing Director
Carter Morse & Mathias

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Presentation Outline

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CMM Profile
History Founded 1987
Services
 Sell-side advisory
 Buy-side advisory
 Valuation services
 Arranging equity & mezzanine capital
 Senior debt financing
 Financial advisory services
Focus Maximizing shareholder value
Track Record 300+ clients
Clients Closely-held middle market companies
Transaction Size $10 million to $100 million
Industries
 Healthcare
 CPG/Retail
 Aerospace
 Clean Tech
 Specialty Manufacturing
 Software and IT
 Business services
 Financial services

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Valuation: A Working Definition:
 At the core of every investment transaction is a mutually
accepted valuation of the company by the investor and
entrepreneur.
 A valuation reflects both the entrepreneur’s
determination of the acceptable amount of ownership
that may be given in return for the investor’s capital and
expertise, and the venture investor’s determination of
the risks and rewards of the investment.
 Value equals the present value of future benefits of
ownership
Adapted from Understanding Valuation:
A Venture Investor’s Perspective,
Callow and Larsen

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Carter Morse & Company
Valuation Premises
 Value equals the present value of future benefits of ownership
 Value is not always a single number
 Value is based on a single point in time
 What is valued
 minority interests vs controlling interests
 equity value vs. entity value

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Traditional Valuation Approaches

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Carter Morse & Company
Valuation Methodologies
Market Approach
 Comparative Public Companies
 Price / Earnings
 Price / Cash Flow
 Price / Book Value
 Price / Revenues
 Price / Asset Value
 Comparative Acquisitions

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Carter Morse & Company
Valuation Methodologies
Income Approach
 Income Methodology
 Capitalized Returns Approach
- Capitalization of Earnings
- Capitalization of Cash Flow
 Discounted Future Returns Approach
- Discounted Net Cash Flow
- Discounted Earnings

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Carter Morse & Company
Valuation Methodologies
Asset Approach
 Net Asset Value
 Adjusted Book Value
 Liquidation Value

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Private Equity Valuations
Source: GF Data Resources
Transactions under $250 million

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Valley of Death

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Valuation stages-Art or Science

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Valuation stages-Art or Science

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Financing Company Stage Data
Risk
Uncertainty
Value
Range
($MM)
Seed
Incorporation & Early
Development
Concept, soft data,
no mgt,
Highest Risk .1-1.0
Series A Development
Market validation
and little
technology risk
Very High 3-5
Series B Shipping Product
Beginning
Revenues
High 5-10
Series C Reference Clients
Predictive
Revenues
Moderate >10
Later
Stage/Mezzanine
Profitable Hard Data, EBITDA
Normal
Business
Risk
20-50
Public Company Profitable Public Information Least Risk Whatever
Valuation By Stage